- Apply for Authority
- P-ISSN2765-6934
- E-ISSN2765-7027
- KCI
ISSN : 2765-6934
Is Currency Depreciation or More Government Debt Expansionary? The Case of Malaysia
- Downloaded
- Viewed
Abstract
Purpose – Many countries rely on currency depreciation or debt-financed government spending to stimulate their economies. Currency depreciation tends to increase net exports and aggregate demand but reduce short-run aggregate supply due to higher import costs. Debt-financed government spending increases aggregate demand, but the crowding-out effect due to a higher real interest rate may reduce private spending and aggregate demand. Therefore, the net impact of currency depreciation or debt-financed government spending on equilibrium real GDP is unclear. Research design, data, and methodology - This paper examines potential impacts of real depreciation of the ringgit, more government debt as a percent of GDP and other relevant macroeconomic variables on aggregate output in Malaysia. Results - Applying the AD/AS model, this paper finds that aggregate output in Malaysia is positively associated with real appreciation during 2005.Q3-2010.Q3, real depreciation during 2010.Q4-2016.Q1, the debt-to-GDP ratio and the real stock price, negatively affected by the real lending rate and inflation expectations, and is not influenced by the real oil price. Conclusions - Real depreciation of the ringgit after 2010. Q3 or sustainable expansionary fiscal policy would be beneficial to the economy.
- keywords
- Exchange Rates, Government Debt, Interest Rates, Stock Prices, Oil Prices.
Reference
Aisen, A., & Hauner, D. (2013). Budget deficits and interest rates: A fresh perspective. Applied Economics, 45(17), 2501-2510.
An, L., Kim, G., & Ren, X. (2014). Is devaluation expansionary or contractionary: Evidence based on vector autoregression with sign restrictions. Journal of Asian Economics, 34(C), 27-41.
Bahmani-Oskooee, M. (1998). Are devaluations contractionary in LDCs?. Journal of Economic Development, 23(6), 131-144.
Bahmani-Oskooee, M., Chomsisengphet, S., & Kandil, M. (2002). Are devaluations contractionary in Asia?. Journal of Post Keynesian Economics, 25(1), 69-82.
Bahmani-Oskooee, M., & Miteza, I. (2003). Are devaluations expansionary or contractionary? A survey article. Economic Issues, 8, 1-28.
Barro, R. J. (1974). Are government bonds net wealth?. Journal of Political Economy, 82(6), 1095-1117.
Barro, R. J. (1989). The Ricardian approach to budget deficits. Journal of Economic Perspectives, 3, 37-54.
Buchanan, J. M. (1976). Perceived wealth in bonds and social security: A comment. Journal of Political Economy, 84(4), 337–342.
Cebula, R. J. (1997). An empirical note on the impact of the federal budget deficit on ex ante real long term interest rates, 1973-1995. Southern Economic Journal, 63, 1094-1099.
Cebula, R. J. (2014a). Impact of federal government budget deficits on the longer-term real interest rate in the US: Evidence using annual and quarterly data, 1960-2013. Applied Economics Quarterly, 60, 23-40.
Cebula, R. J. (2014b). An empirical investigation into the impact of US federal government budget deficits on the real interest rate yield on intermediate-term treasury issues, 1972–2012. Applied Economics, 46, 3483-3493.
Cebula, R. J., & Cuellar, P. (2010). Recent evidence on the impact of government budget deficits on the ex-ante real interest rate yield on Moody’s Baa-Rated corporate bonds. Journal of Economics and Finance, 34, 301-307.
Cebula, R. J., Angjellari-Dajci, F., & Foley, M. (2014). An exploratory empirical inquiry into the impact of federal budget deficits on the ex post real interest rate yield on ten year treasury notes over the last half century. Journal of Economics and Finance, 38(4), 712-720.
Darrat, A. F. (1989). Fiscal deficits and long-term interest rates: Further evidence from annual data. Southern Economic Journal, 56(2), 363-373.
Darrat, A. F. (1990). Structural federal deficits and interest rates: Some causality and cointegration tests. Southern Economic Journal, 56, 752-759.
Feldstein, M. (1976). Perceived wealth in bonds and social security: A comment. Journal of Political Economy, 84(2), 331–336.
Feldstein, M. (1982). Government deficits and aggregate demand. Journal of Monetary Economics, 9, 1-20.
Findlay, D. W. (1990). Budget deficits, expected inflation and short-term real interest rates: Evidence for the US. International Economic Journal. 4, 41-53.
Gupta, K. L. (1989). Budget deficits and interest rates in the US. Public Choice, 60, 87-92.
Gylfason, T., & Schmid, M. (1983). Does devaluation cause stagflation?. Canadian Journal of Economics, 16(4), 641-654.
Gylfason, T., & Risager, O. (1984). Does devaluation improve the current account?. European Economic Review, 25, 37-64.
Hamilton, J. D. (1996). This is what happened to the oil price–macroeconomy relationship. Journal of Monetary Economics, 38(2), 215–220.
Hoelscher, G. (1986). New evidence on deficits and interest rates. Journal of Money, Credit, and Banking, 18(2), 1-17.
Kalyoncu, H., Artan, S., Tezekici, S. & Ozturk, I. (2008). Currency devaluation and output growth: An empirical evidence from OECD countries. International Research Journal of Finance and Economics, 14, 232-238.
Kamin, S. B., & Klau, M. (1998). Some multi-country evidence on the effects of real exchange rates on output. FRB International Finance Discussion Paper 611. Washington, DC.
Kilian, L. (2008a). The economic effects of energy price shocks. Journal of Economic Literature, 46(4), 871–909.
Kilian, L. (2008b). Not all oil price shocks are alike:Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 216-240.
Kim, G., An, L., & Kim, Y. (2015). Exchange rate, capital flow and output: Developed versus developing economies. Atlantic Economic Journal, 43(2), 195-207.
Kim, Y., & Ying, Y. H. (2007). An empirical assessment of currency devaluation in East Asian countries. Journal of International Money and Finance, 26(2), 265-283.
Lau, E., Mansor, S. A., & Puah, C. H. (2010). Revival of the twin deficits in Asian crisis-affected countries. Economic Issues, 15(Part 1), 29-53.
McMillin, W. D. (1986). Federal deficits and short-term interest rates. Journal of Macroeconomics, 8, 403-422.
Mohammadi, H., & Moshrefi, G. (2012). Fiscal policy and the current account: New evidence from Four East Asian countries. Applied Economics Letters, 19(2), 167-173.
Morley, S. A. (1992). On the effect of devaluation during stabilization programs in LDCs. Review of Economics and Statistics, 74(1), 21-27.
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica. Journal of the Econometric Society, 59(2), 347-370.
Nunnenkamp, P., & Schweickert, R. (1990). Adjustment policies and economic growth in developing countries - Is devaluation contractionary?. Weltwirt schaftliches Archiv, 126(3), 474-493.
Ostrosky, A. L. (1990). Federal government budget deficits and interest rates: Comment. Southern Economic Journal, 56(3), 802-803.
Reinhart, C. M., & Rogoff, K. S. (2010). Debt and growth revisited. (MPRA Paper No. 24376). Munich University Library.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations